Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid 19 Crisis

38 Pages Posted: 22 Jul 2020

See all articles by Gianfranco Siciliano

Gianfranco Siciliano

China Europe International Business School - Accounting & Finance Department

Marco Ventoruzzo

Bocconi University - Department of Law

Date Written: July 14, 2020

Abstract

During the recent COVID-19 pandemic crisis, stock markets around the world have witnessed an abrupt decline in security prices and an unprecedented increase in security volatility. In response to a week of financial turmoil on the main European stock markets, some market regulators in Europe, including France, Austria, Italy, Spain, Greece, and Belgium, passed temporary short-selling bans in an attempt to stop downward speculative pressures on the equity market and stabilize and maintain investors’ confidence. This paper examines the effects of these short-selling bans on market quality during the recent pandemic caused by the spread of COVID-19. Our results suggest that during the crisis, banned stocks had higher information asymmetry, lower liquidity, and lower abnormal returns compared with non-banned stocks. These findings confirm prior theoretical arguments and empirical evidence in other settings that short-selling bans are not effective in stabilizing financial markets during periods of heightened uncertainty. In contrast, they appear to undermine the policy goals market regulators intended to promote.

Keywords: Equity Markets, Covid-19 Pandemic, Short-selling bans

JEL Classification: G01, G18, K22

Suggested Citation

Siciliano, Gianfranco and Ventoruzzo, Marco, Banning Cassandra from the Market? An Empirical Analysis of Short-Selling Bans during the Covid 19 Crisis (July 14, 2020). European Corporate Governance Institute - Law Working Paper No. 532/2020, Bocconi Legal Studies Research Paper No. 3657375, Available at SSRN: https://ssrn.com/abstract=3657375 or http://dx.doi.org/10.2139/ssrn.3657375

Gianfranco Siciliano

China Europe International Business School - Accounting & Finance Department ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Marco Ventoruzzo (Contact Author)

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, Milan 20136
Italy

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
120
Abstract Views
633
rank
259,245
PlumX Metrics